Selective Insurance Group Unveils Q1 Numbers

April 27, 2004

New Jersey-based Selective Insurance Group Inc., reported net income of $27.5 million, or $0.88 per diluted share, for the first quarter ended March 31, 2004, compared with $8.0 million, or $0.29 per diluted share, for the same period last year.

Operating income(1) increased 341%, to $24.1 million, or $0.77 per diluted share for the first quarter 2004, compared with $5.5 million, or $0.20 per diluted share, for the first quarter 2003. Net premiums written increased 16% to $375.3 million in the first quarter 2004 compared with the same period last year.

More than four consecutive years of double-digit commercial renewal price increases combined with ongoing underwriting improvements and lower catastrophe losses, contributed to almost a nine point drop in Selective’s GAAP combined ratio for the quarter to 97.9%, down from 106.7% in the first quarter of 2003. For the same period, the statutory combined ratio improved to 95.7%, down from 104.4%.

Weather-related catastrophe losses accounted for 1.5 points of the statutory combined ratio for the quarter, or $3.0 million after-tax, compared with 4.4 points, or $7.7 million after-tax, for the first quarter 2003.

Selective Insurance Group Inc., Chairman, President and CEO Gregory Murphy stated, “Our strong first quarter was driven by the excellent performance of our commercial lines operation, which represents 83% of overall premium volume. The well-defined strategies we have built around strong relationships with our agents, technology that drives ease of doing business, and superior service, are clearly differentiating Selective in the marketplace and driving profitable growth. Commercial lines premiums were up 19% for the
quarter; renewal pricing was up 10.3%; and our commercial lines statutory combined ratio dropped nearly 11 points from the same period last year, to 93.4%. With increases in premiums continuing to outpace loss trends, the outlook for commercial business remains favorable.”

Earlier in the day, A.M. Best affirmed Selective’s “A+” (Superior) rating
for the 43rd consecutive year, citing the company’s “strong balance sheet and the benefits gained from its field office structure, technology, and the continued leveraging of agency relationships. In addition, the rating recognizes Selective’s disciplined underwriting culture, conservative investment philosophy and prudent capital management, which have contributed to the group’s consistent operating profitability.”

Murphy noted, “As regional insurers continue to expand their share of the commercial lines marketplace, Selective’s competitive advantages place us at the forefront of an industry where only 6% of commercial lines carriers achieve an “A+” or better A.M. Best rating. Our consistent and profitable growth has advanced our position on the “Fortune 1000” list of the largest companies in the United States (based on 2003 revenues) to No. 917, up from No. 967 in 2002. More importantly, Selective outperformed many larger Fortune peer companies in both earnings growth and total return to shareholders. Our stockholders’ equity at March 31, 2004 was up 22% to $800.5 million compared with March 31, 2003, and for the same period, book value per share increased 18%, to $28.88.

“Our personal lines statutory combined ratio, which includes the flood
operation, was up about a point to 106.1% for the quarter, compared with the same period last year, due to several large fire losses in the homeowner’s line. Personal automobile results showed continued improvement, driven by our New Jersey personal automobile business, which produced a statutory combined ratio of 94.7% for the period, compared with 101.9% for the first quarter of 2003. While we are pleased with the improvement, our efforts to achieve stability in this often volatile book of business continue. Building on a 5%
rate increase effective in March 2004, our action plans include further tier revisions designed to lower rates for our best customers and improve our competitive position in this changing marketplace,” Murphy said.

Revenue for the first quarter 2004 increased 17% over first quarter 2003, to $375.1 million. This growth was driven by continued increases in net premiums earned, up 18% to $315.3 million; higher net investment income of $29.5 million, up 8%; and a 14% increase in revenue, to $24.2 million from the company’s Diversified Insurance Services operation. Return on revenue for the diversified businesses remained consistent at 6.1%.

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